Engineering Tomorrow | Costain Group PLC Results for the year ended - PowerPoint PPT Presentation

Engineering Tomorrow | Costain Group PLC Results for the year ended 31 December 2016

Unique strategy driving results  Another strong performance with significant growth in both revenue and profit  Major customers committed to spending £ billions on essential infrastructures  Accelerating growth both organically and by targeted acquisition  Our world is changing rapidly and fundamentally, driven by technology  Increase in dividend reflects confidence for the future Costain is improving people’s lives by deploying technology-based solutions to meet urgent national needs Costain Group PLC - Results for year ended 31 December 2016 2

Financial Review Tony Bickerstaff Finance Director 3

Another strong performance  Revenue, including share of joint ventures and associates, increased to £1.7bn (2015: £1.3bn) Underlying 1 operating profit up 24% to £41.1m (2015: £33.2m)  Underlying 1 profit before tax of £37.5m (2015: £29.9m)  Underlying 1 basic earnings per share of 31.5p (2015: 25.1p)  Net cash position 2 of £140.2m (2015: £108.2m) reflecting positive timing of receipts at period end   Recommended final dividend of 8.4p (2015: 7.25p) if approved, total dividend for 2016 up 15% to 12.7p (2015: 11.0p) Notes: 1. Before other items; amortisation of acquired intangible assets and employment related and other deferred consideration 2. Net cash balance is cash and cash equivalents less interest bearing loans and borrowings Costain Group PLC - Results for year ended 31 December 2016 4

‘One Costain ’ philosophy   Focus on blue chip customers through Longer term, lower risk, more collaborative long-term strategic relationships  Ability to adapt to customers’ rapidly  Delivering required broad range changing needs, driving significant of integrated services levels of repeat order business  90% target cost based contracts £20 billion annual addressable market Energy Two reporting Executive investment divisions: panel: BUT Infrastructure Allocation of resources Natural Resources determined by opportunity Water Transportation Costain Group PLC - Results for year ended 31 December 2016 5

Revenue growth reflects ‘One Costain ’ philosophy Revenue split by market (£m) Rail Highways 2016 Power Water Nuclear 2015 Oil and Gas Other 0 200 400 600 800 1000 1200 1400 1600 1800 ‘One Costain ’ philosophy ensures resource focused on most attractive opportunities  Significant continued growth in Rail to modernise aging infrastructure  Growth in Water reflecting AMP6 investment cycle  Major Smart Motorways investment programme by Highways England Costain Group PLC - Results for year ended 31 December 2016 6

Increasing profitability Group underlying operating profit (£m) 1 Group underlying profit from operations (£m) 1 50 50 40 40 9.1 4.0 41.3 30 41.1 30 9.1* 4.0* 33.1 7.7 * 33.2 28.7 20 27.4 27.4 20 24.5 25.9 23.1 10 10 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 * PFI & investments sales and in 2012 net of one-off costs resulting from pensions scheme liability management Underlying EPS (p) 1 Weighted average number of shares (m) Based on enlarged capital 50 base from March 2014 2016 102.8 40 30 2015 101.7 44.1 20 27.8 39.7 31.5 2014 94.6 25.1 10 2013 66.3 0 2012 2013 2014 2015 2016 2012 65.3 Note: 1. Before other items; amortisation of acquired intangible assets and employment related and other deferred consideration and in 2013 exceptional transaction costs Costain Group PLC - Results for year ended 31 December 2016 7

Segmental income statement reflects targeted resource allocation 2015 2016 2016 2015 Underlying 2 Underlying 2 Revenue 1 Operating Profit Revenue 1 Operating Profit £m £m Margin £m £m Margin Infrastructure 1.276.1 56.6 4.4% 996.1 50.9 5.1% (8.6) 3 Natural Resources 377.3 (2.3%) 317.6 (11.1) (3.5)% Alcaidesa (From 1/7/15) 4.6 (0.7) 2.8 (0.5) Central costs - (6.2) (6.1) Total 1,658.0 41.1 1,316.5 33.2 Alcaidesa (JV to 30/6/15) - 0.9 (0.4) Other JVs 0.2 0.3 Underlying profit from operations 2 41.3 33.1 Net interest expense (3.8) (3.2) Underlying profit before tax 2 37.5 29.9 Underlying basic earnings per share 2 31.5p 25.1p Notes: 1. Including share of joint ventures and associates 2. Before other items; amortisation of acquired intangible assets and employment related and other deferred consideration 3. In 2016 Natural Resources underlying operating profit was £6.5m before impact of Greater Manchester Waste costs and provision of £15.1m 8 Costain Group PLC - Results for year ended 31 December 2016

Greater Manchester Waste contract update  Contract awarded in 2007 as part of GMWDA PFI scheme  All 46 facilities are operational and processing waste  Final Acceptance of all facilities targeted in 2017  Further works when access is available in accordance with the operational running of the plants under an agreed schedule to 2019  Total costs and provisions taken in 2016 of £15.1m in relation to the completion of the contract  No other contracts of this type Costain Group PLC - Results for year ended 31 December 2016 9

Two key elements driving cash flow 1. Net cash timing due to: MONTH MONTH MONTH END END END  Thirty day payment cycle 30 DAY 30 DAY PAYMENT PAYMENT CYCLE CYCLE  Year end balance benefited from positive working capital due to timing of receipts including several early receipts  Average month end balance more reflective of underlying cash position MAJORITY OF RECEIPTS & PAYMENTS 2. Target cost, cost reimbursable contracts:  Suitable for complex, long term investment programmes  Lower risk, more collaborative Cash balance Opportunity for gain share paid at end of contract Paid only actual cost £m and agreed fee Profit Typically 5-10 years Costain Group PLC - Results for year ended 31 December 2016 10

Strong net cash position at year end  Year end timing impact on working capital 2016 2015  positive benefit in 2016: c.£60m £m £m  reversal of timing benefit from 2015: c.£25m Net cash at beginning of period 108.2 148.5  net benefit in 2016: £35m Cash from operations 49.6 38.2 Changes in working capital (excluding pension deficit contributions) 36.0 (10.0)  Average month end cash balance of £69.1m (2015: £103.7m) Cash flow from operating activities 85.6 28.2  full year impact of acquisitions on 2016 average cash: Rhead: £18m; SSL: £9m Pension deficit contributions (14.3) (10.0) Acquisition consideration (18.3) (35.4) Alcaidesa debt restructuring - (8.1)  H1 2017, year-end positive timing likely to unwind Dividends (11.0) (9.4) Issue of ordinary share capital 2.5 - Interest, tax, fixed assets,  June positive timing less pronounced investments & currency (12.5) (5.6)  Small underlying working capital outflow, in line Net cash at end of period 140.2 108.2 Net cash reconciliation: with contract terms, expected in 2017 Cash and cash equivalents at end of period 210.2 146.7 Less: bank borrowings (70.0) (38.5)  Average cash balance in 2017 expected to be at a Reported net cash 140.2 108.2 similar level to 2016 11 Costain Group PLC - Results for year ended 31 December 2016

Robust balance sheet and increased banking facilities 31 December 2015 31 December 2016 £m £m Assets Non current assets 103.7 (excluding pension deficit deferred tax) 119.3 274.7 302.7 Trade and other receivables 210.2 146.7 Cash and cash equivalents 512.9 421.4 Current assets 525.1 632.2 Total assets Current liabilities (372.2) (441.6) Total assets less current liabilities 152.9 190.6 Non current liabilities (31.5) (2.9) (excluding net pension liability) (59.5) (29.4) Pension liability net of deferred tax Total equity 99.6 120.6  Banking and bonding facilities increased to  Maturity date extended to 30 June 2021 £555m (including £155m debt facility) Costain Group PLC - Results for year ended 31 December 2016 12

Managing legacy pension obligation  Increase in accounting deficit primarily due to the 31 Dec 31 Dec reduction in corporate bond yields used as the discount 2016 2015 rate for liabilities £m £m  Agreed full actuarial valuation at 31 March 2016 and Fair value of scheme assets 754.0 650.7 updated recovery plan Present value of defined benefit (827.5) (687.4)  Total amount of contributions is anticipated to be at same obligations level as the previous agreed plan Recognised liability for defined benefit (73.5) (36.7) obligations  Contributions at £10m for 12 months to 31 March 2017 Deferred tax 14.0 7.3 and then £9.6m per annum increasing with inflation until 2031 Net pension deficit (59.5) (29.4)  In addition, as previously agreed, an additional top-up for total contributions to match annual dividend payments Notes  Legacy defined benefit scheme; closed to new entrants in 2005 and closed fully to future accrual in 2009  All current employees on defined contribution arrangements only  Actions taken to manage obligation including asset transfers and liability reductions Costain Group PLC - Results for year ended 31 December 2016 13